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Buying land or a building almost always requires long-term financing. However, when you sell a building and buy another, you may be able to use the equity of your previous building to help cover the down-payment on the new one.
Before approaching a financial institution, you must provide a summary of your business operations as well as your company's history. Resist the temptation to develop overly optimistic forecasts to sway credit institutions in your favour. In the long run, payment problems or higher-than-necessary credit costs could reduce any room you have to manoeuvre and result in being very costly.
Main factors to consider
The best option is not always the one with the lowest interest rate. A seemingly more expensive loan may include services or payment terms that are much better suited to your particular industry or even to your financial results. Here are the top factors to consider:
- Percentage of financing (a higher percentage protects your working capital)
- Repayment options (seasonal? Stepped or fixed payments?)
- Security required (personal guarantees?)
- Interest rate
3 financing solutions
- Standard mortgage
- Term loan in the context of general financing based on your business plan
- Specialized programs designed for a specific industry, sector, or business category
Standard mortgage
Diversifying your financing sources may have its advantages: you do not have to rely on only one financial institution's policies, and you may be able to get more financing, better rates or terms, or provide fewer personal guarantees, for example.
Term financing
Some financial institutions, including the BDC, offer term financing for buying land and buildings. Term financing is particularly well suited to purchasing land and buildings: with BDC, for example, the percentage of financing of the total cost of the project is generally higher since it is the growth potential of your project that is examined. Re-payment options are flexible and tailored to your cash flow variations.
Specialized financing
Some business and professional associations, governments, and financial institutions offer programs designed for businesses in a specific sector, size, or orientation (exporters, for example).
In partnership with the chartered banks, the Government of Canada has developed a loan guarantee program called the Canada Small Business Financing Program which makes it easier for a company with under $5 million in sales to get up to $250,000 to buy land or a building, equipment, etc.
The Government of Québec has a program called "soutien aux équipements culturels"  (french only) which helps cultural businesses to acquire a building, with loans of up to $1 million.
The Sources of financing section on Industry Canada's Strategis site is an excellent tool for finding the most interesting programs for your business.
Financing energy efficiency
If you commit to making your building more energy efficient, you may be entitled to various assistance programs. This type of work is often expensive but can result in substantial long-term savings.
Energy Innovators Initiative can help finance up to 50% of energy improvement planning costs and up to 25% (maximum $250,000) of the cost of the actual work.
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